Since last year I, and others, have been repeatedly warning of an over supply in the Brisbane apartment market. That reality is now so obvious that if you were to deny its existence you’d probably get strange looks, certainly from your banker.
The residential markets of Sydney, Melbourne and Brisbane have already or are presently peaking. Whilst apartments are an over supply issue, the broader residential markets in these 3 cities are experiencing a bubble resulting from historically low interest rates and Australia’s unique obsession with residential real estate investment. Investment grade properties are most at risk with vacancies to blow out and rents to drop.
If you are considering buying residential in the foreseeable future the market will present an opportunity to purchase quality stock in quality areas over next 2 years.
- Unit sales rates are falling
- Development costs, particularly construction and finance, have increased dramatically over last 2 years
- Increasing settlement risk with higher bank LVRs and lower valuations at settlement than contracted price (Mirvac revealed last weak the number of their apartments failing to settle had increased in recent months)
- Developers abandoning residential projects and putting sites back on the commercial market either vacant or with very short WALEs
- Real estate agent numbers grow by 8% in the last 12 months on the east coast of Australia
The Brisbane commercial market continues to be over supplied resulting in depressed rents and tenants demanding very high incentives. This will take a few years to play out, possibly a full cycle.
In times like this a property's location and attractiveness to business will come to the fore and be the difference between seeing through a rough market or being the subject of a sad business lunch story.
The industrial sector is also nearing a peak but is in far better condition than the residential and commercial markets.
Deloitte Access Economics are forecasting Queensland’s industrial production to increase approximately $14.5B over the next 5 years, well ahead of New South Wales and Victoria. New infrastructure projects will increase activity in the industrial property market both in terms of sales and leasing.
Presently however, vacancies have increased over the last few months with the introduction of a large amount of speculative stock onto the market. Whilst take up remains relatively strong, tenants in my own recent experience of negotiating turn-key deliveries, are able to be fickle and demanding as they are enticed by speculative stock developers.
Tenant preference is clearly for new prime stock leading to discounting of secondary stock. Owners of secondary stock with expring leases need to determine their tenant’s re-lease intentions 12 months before expiry with a view to marketing as early as possible if their tenant won't recommit.